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Thursday, 6 July 2017

After a restless night's sleep laced with vivid nightmares, including about how to correctly describe the Bundesgerichtshof for non-German readers, the AmeriKat has managed to ground herself with the always interesting debate about extra-territorial patent infringement. Following Sunday's brief alert ona recent decision from Germany's Bundesgerichtshof, Dr Felix Trumpke (Quinn Emanuel) reports on what this decision means for German infringement actions:

"About two months ago, the German Supreme Court (“Bundesgerichtshof”) ruled that a foreign company selling patent infringing goods to customers outside of Germany may be liable for patent infringement in Germany (Decision of 16th May 2017, X ZR 120/15 – Abdichtsystem). The decision further includes some interesting findings with regard to the claim for recall of infringing products from the distribution channels.

Background

In the case law of the Supreme Court, it has been established that deliveries from a foreign company to a customer in Germany constitutes patent infringement in Germany (Decision of 26th February 2002, X ZR 36/01 – Funkuhr I). Recently, the Supreme Court had confirmed that it doesn’t matter in this context where the German customer takes possession of the products (i.e. in Germany or abroad), as long as the foreign company knew that the third party would possibly further deliver the products to Germany (Decision of 3rd February 2015, X ZR 69/13 – Audiosignalcodierung). As a result, the foreign company can be liable for patent infringement in Germany if it has positive knowledge about the patent infringing action by its customers.

The dispute

The plaintiff, the owner of a European patent that relates to a system for sealing inflatable articles, sued a company based in Italy for patent infringement in Germany. The defendant did not sell the majority of its products in Germany itself, but delivered them to its customers who were based outside of Germany, too. However, some of these customers then sold these products in Germany.

The plaintiff had won before the Court of First Instance (Landgericht Mannheim) based on the defendant’s own deliveries to Germany, including an order to recall the products from the German market. The defendant appealed and the plaintiff cross-appealed to extend the case to deliveries to third-parties who were based outside of Germany and of which the defendant knew that they were delivering to Germany. The Court of Appeal (Oberlandesgericht Karlsruhe) dismissed the defendant’s appeal and the cross-appeal, holding – in line with the earlier Supreme Court decisions – that the defendant could only be liable for its customer’s acts in Germany if the defendant had positive knowledge of these customers delivering the products in Germany. In the case at hand, though, it found that the plaintiff had not submitted enough facts to show that the defendant had positive knowledge that its customers delivered the products to Germany. At most, the defendant could have considered such further deliveries to Germany possible, which the Court of Appeal found not sufficient.

The Supreme Court’s Decision

Before addressing the core issue of the case, the German Supreme Court first specified the requirements of the claim for recall of infringing products from the distribution channels if the infringer is situated outside of Germany and in relation to the claim for removal of infringing goods from the distribution channels.

According to Sec. 140a subs. 3 German Patent Act any infringer of a patented invention may be sued “for recall of the products which are the subject-matter of the patent or for definitive removal of the products from the channels of commerce”. Section 140a subs. 3 includes both, the claim for recall and the claim for definitive removal, in line with the Enforcement Directive. Even though the wording of Sec. 140a subs. 3 seems to suggest that either the claim for recall or the claim for removal can be asserted, the Court confirmed that both claims may be made at the same time since they both are directed to different, but complementary goals. Whereas the claim for recall obliges the infringer to request its customers to return the infringing goods delivered, the claim for removal puts the infringer under the obligation to take all reasonable factual and legal measures available to eliminate the further circulation of the infringing products within the distribution channels. Moreover, the Court stated that Sec. 140a subs. 3 German Patent Act does not require the infringer to have power of disposal over the respective products affected by the recall. Finally, according to the Court the claim for recall can be made regardless of the place of residence of the infringer. As a result, the claim can also be asserted against a supplier based in a foreign country.

The Supreme Court then turned to the crucial issue of the case, i.e. to the question of whether and under what conditions the delivery of goods from a supplier with a residence outside of Germany to a costumer who is also based outside of Germany can result in a liability of the supplier for patent infringement in Germany. On the basis of its previous decisions the Supreme Court now went a step further and held that not only positive knowledge of further deliveries to Germany gives rise to liability. In addition, the supplier may also be liable for patent infringement if there are sufficiently specific facts that make it seem likely that its customers will further deliver the infringing goods to Germany. The supplier is, as a matter of principle, not obliged to generally investigate or control the further use of the products by its customers. He is obliged, however, to investigate the circumstances of the case if there are specific reasons to believe that its customer’s further use may result in a patent infringement by delivering the products to Germany. The mere possibility of the customer delivering the goods to Germany, however, is not sufficient; concrete facts are required. This is the case, for instance, if the amount of products delivered is so huge that it can hardly be distributed only within markets where there is no patent protection. Under such circumstances, the supplier can no longer have confidence in its costumer not infringing patent rights in Germany. In fact, the supplier is obliged to ask the customer about deliveries and offers in Germany and, as a precautionary measure, to point out a potential patent infringement. If the customer does not provide a satisfactory response, the supplier – by continuing to deliver the products to its customer – must consider a possible participation in patent infringement even though the delivery takes place outside of Germany.

In the matter to be decided there was a significant discrepancy between the number of products delivered to Germany in general and the number of products delivered to Germany by the defendant directly. In the first instance, the defendant had stated that an injunction would have a devastating impact on its business within Germany whereas its trading with German costumers directly was negligible. The German Supreme Court deduced from this statement that the products must have been put on the German market on a large scale by the defendant’s customers and that the defendant must have been aware of these facts. As a result, the Court held that “it could hardly be denied that there were specific facts for deliveries to Germany”.

With that ruling the case was remanded to the Court of Appeal in order to investigate the relevant facts including whether there were specific enough reasons for the defendant to believe that its customers would further deliver the goods to Germany. The Court of Appeal will also have to investigate whether the defendant’s customers actually infringed the patent by delivering the goods to Germany or – at least – whether there was a risk of a first-time infringement. In both cases, the defendant will have to render account about all deliveries of the goods to any customers who (also) made a delivery to Germany. According to the German Supreme Court the claims for provision of information and for rendering accounts are not limited to infringing acts only since the plaintiff needs comprehensive information in order to reasonably calculate the compensation for any damage caused.

Points worth remembering

• The liability of a foreign company for patent infringement in Germany does not require positive knowledge of the behavior of its customers based outside of Germany. Circumstances indicating that the company’s customers may infringe the patent by delivering the products to Germany can be sufficient to give rise to liability of the company.

• As soon as the company becomes aware of facts indicating infringing activities of its customers, it should actively investigate the circumstances and inform its customers about possible patent infringements."

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